SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1997 Commission file number: 0-2047
CAPITOL TRANSAMERICA CORPORATION (CTC)
(Exact name of registrant as specified in its charter)
A WISCONSIN CORPORATION 39-1052658
4610 University Avenue
Madison, Wisconsin 53705-0900
Registrant's telephone number, including area code: (608) 231-4450
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the regis-
trant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Based on the closing average of the high (21) and low price (20 1/4), the ag-
gregate market value of voting stock held by non-affiliates of the registrant
as of March 31, 1997 was approximately $229,961,717.
Indicate the number of shares of each of the issuer's class of common stock, as
of the latest practicable date:
At March 31, 1997
Common Stock, $1.00 Par Value;
Issued: 11,466,107
Outstanding: 11,149,659
Total Pages: 21
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Part I
Financial Information Page
Consolidated Financial Statements 3 - 7
Notes to Consolidated Financial Statements 8 - 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 12
Condensed Statutory Financial
Statements of Insurance Subsidiaries 13
Part II
Other Information
Other Disclosures 15
Officers and Directors 16
Signatures 17
Exhibit 1 (Press Release) 18 - 21
2
<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
<S> <C> <C> <C>
ASSETS
Investments:
Available-for-sale investment securities, at fair value
U.S. Government bonds (amortized cost $577,473, $578,852
and $589,654, respectively) $ 580,851 $ 583,395 $ 596,194
State, municipal and political subdivision bonds (amortized
cost $67,546,951, $75,906,193 and $68,762,798, respectively) 71,654,830 80,590,881 73,829,530
Corporate bonds and notes (amortized cost $888,584,
$1,321,999 and $882,365, respectively) 956,169 1,392,449 834,539
Equity securities:
Common stock (cost $76,702,123, $59,099,459 and
$52,695,040, respectively) 100,797,004 86,569,214 66,560,950
Nonredeemable preferred stock (cost $5,929,487, $5,346,938
and $5,006,206, respectively) 6,695,155 5,881,180 5,561,387
Investment real estate, at cost, net of depreciation 6,690,905 6,721,343 1,427,939
Short-term investments, at cost which
approximates fair value 1,963,171 3,063,384 2,406,332
Total Investments 189,338,085 184,801,846 151,216,871
Cash 989,618 364,994 142,741
Accrued investment income 1,604,340 1,684,940 1,707,822
Receivables from agents, insureds and others, less allowance for
doubtful accounts of $395,000, $380,000 and $335,000, respectively 18,661,166 18,712,387 13,204,217
Balances due from reinsurers 0 1,033,058 1,381,201
Funds held by ceding reinsurers 0 44,791 78,385
Deferred insurance acquisition costs 12,802,028 12,978,314 9,618,675
Prepaid reinsurance premiums 427,955 704,148 964,312
Due from securities brokers 768,750 6,347,754 -
Other assets 2,036,203 2,213,222 2,025,011
Total Assets $226,628,145 $228,885,454 $180,339,235
</TABLE>
3
<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
<S> <C> <C> <C>
LIABILITIES
Policy liabilities and accruals:
Reserve for losses $ 30,715,464 $ 29,811,723 $ 26,824,655
Reserve for loss adjustment expenses 18,382,985 17,890,640 13,102,900
Unearned premiums 42,469,597 43,258,833 32,584,552
Total Policy Liabilities and Accruals 91,568,046 90,961,196 72,512,107
Accounts payable 6,323,360 6,612,383 3,717,048
Dividends payable - 4,526 -
Due to securities brokers 147 398 474,281 -
Balances due to reinsurers 1,676,650 1,776,524 2,483,777
Accrued premium taxes 313,592 562,573 208,034
Income taxes payable 1,349,935 1,870,252 855,546
Deferred income taxes 8,632,826 10,041,836 5,751,339
Total Other Liabilities 18,443,761 21,342,375 13,015,744
Total Liabilities 110,011,807 112,303,571 85,527,851
SHAREHOLDERS' INVESTMENT
Common stock, $1.00 par value, authorized 15,000,000 shares,
issued 11,466,107, 7,612,711 and 7,591,545, respectively 11,466,107 7,612,711 7,591,545
Common stock distributable, 3,806,355 shares at $1.00 par value - 3,806,355 -
Paid-in surplus 21,483,784 21,114,644 20,987,134
Net unrealized appreciation on investment securities carried at
fair value, net of deferred taxes of $9,873,393, $11,139,649
and $6,611,821, respectively 19,165,996 21,624,025 12,834,716
Retained earnings 64,853,711 62,761,654 53,719,684
Shareholders' investment before treasury stock 116,969,598 116,919,389 95,133,079
Treasury stock, 316,448, 315,769 and 209,831 shares,
respectively, at cost (353,260) (337,506) (321,695)
Total Shareholders' Investment 116,616,338 116,581,883 94,811,384
Total Liabilities and Shareholders' Investment $226,628,145 $228,885,454 $180,339,235
Book Value Per Share $ 10.46 $ 10.50 $ 8.56
Shares Outstanding 11,149,659 11,103,297 11,072,571
</TABLE>
4
<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For The Three Months Ended March 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
REVENUES
Premiums earned $ 20,360,470 $ 17,163,574
Net investment income 2,147,302 1,709,655
Realized investment gains 345,694 116,259
Other revenues 9,727 31,749
Total Revenues 22,860,193 19,021,237
LOSSES AND EXPENSES INCURRED
Losses incurred 7,745,811 6,929,081
Loss adjustment expenses incurred 2,142,597 1,646,560
Underwriting, acquisition and
insurance expenses 7,047,412 6,036,403
Decrease (Increase) in deferred insurance
acquisition costs 176,286 (389,807)
Other expenses 323,745 312,921
Total Losses and Expenses Incurred 17,435,851 14,535,158
Income from operations before
income taxes 5,424,342 4,486,079
Income tax expense (benefit)
Current 1,579,669 1,169,568
Deferred (142,664) 36,549
1,437,005 1,206,117
Net Income $ 3,987,337 $ 3,279,962
INCOME PER SHARE $ 0.36 $ 0.30
Weighted Average Number of Shares Outstanding 11,092,524 11,058,254
5
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS INVESTMENT
<CAPTION>
Unrealized
Common Appreciation
Common Stock (Depreciation)
Stock Distributable on Securities
(Par Value (Par Value Paid-In Carried at Retained Treasury
$1.00) $1.00) Surplus Fair Value Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 6,877,596 $ - $ 7,931,671 $ (656,743) $54,157,275 $ (330,625)
Net income - - - - 13,930,406 -
Unrealized appreication on available-for
sale securities, net of deferred taxes - - - 13,916,731 - -
Stock options exercised 21,464 - 88,460 - - 8,918
Cash dividend - 689,545 12,928,969 - (13,618,514) -
Cash dividends declared - - - - (3,291,273) -
Balance, December 31, 1995 6,899,060 689,545 20,949,100 13,259,988 51,177,894 (321,707)
Net income - - - - 18,349,158 -
Unrealized appreciation on available-for
sale securities, net of deferred taxes - - - 8,364,037 - -
Stock options exercised 21,106 - 165,544 - - (15,799)
Stock dividends 689,545 3,116,810 - - (3,806,355) -
Cash dividend declared - - - - (2,959,043) -
Balance, December 31, 1996 7,612,711 3,806,355 21,114,644 21,624,025 62,761,654 (337,506)
Net income - - - - 3,987,337 -
Unrealized appreciation on available-for
sale securities, net of deferred taxes - - - (2,458,029) - -
Stock options exercised 47,041 - 369,140 - - (15,754)
Stock dividend 3,806,355 (3,806,355) - - - -
Cash dividend declared - - - - (1,895,280) -
Balance, March 31, 1997 11,466,107 - 21,483,784 19,165,996 64,853,711 (353,260)
6
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31, December 31, March 31,
1997 1996 1996
Cash flows provided by operating activities:
<S> <C> <C> <C>
Net Income $ 3,987,337 $ 18,349,158 $ 3,279,962
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 218,992 805,784 130,582
Realized investment gains (345,694) (8,468,911) (116,259)
Change in:
Deferred insurance acquisition costs 176,286 (3,749,446) (389,807)
Unearned premiums (789,236) 11,703,105 1,028,824
Allowance for doubtful accounts receivable from agents 15,000 60,000 15,000
Accrued investment income 80,600 33,314 10,432
Receivables from agents, insureds and others 36,221 (6,898,262) (1,345,092)
Balances due to/from reinsurers 35,859 (136,449) 800,380
Reinsurance recoverable on paid and unpaid losses 897,325 (151,080) 19,945
Funds held by ceding reinsurers 46,300 32,326 (1,268)
Income taxes payable (520,317) 1,980,343 965,637
Deferred income taxes (142,754) (68,247) 169,082
Due to/from securities brokers 5,252,121 (6,028,431) (154,958)
Prepaid reinsurance premiums 276,193 192,901 (67,263
Other assets 48,739 (123,731) (722,684)
Reserve for losses and loss adjustment expenses 1,396,086 9,118,279 1,343,471
Accounts payable (289,023) 2,250,075 (645,260)
Accrued premium taxes (248,981) 180,029 (174,510)
Net cash provided by operating activities 10,131,054 19,080,757 4,146,214
Cash flows provided by (used for) investing activities:
Proceeds from sales of available-for-sale investments 10,173,366 27,579,131 577,705
Purchases of available-for-sale investments (19,121,648) (49,010,584) (4,409,142)
Maturities of available-for-sale investments 994,563 6,917,920 1,294,239
Purchase of depreciable assets (53,331) (1,279,331) (626,856)
Net cash used for investing activities (8,007,050) (15,792,864) (3,164,054)
Cash flows provided by (used for) financing activities:
Cash dividends paid (1,899,807) (3,699,525) (1,483,180)
Stock options exercised 416,181 173,851 40,974
Net proceeds from sale of treasury stock (15,754) 0 12
Net cash used for financing activities (1,449,380) (3,525,674) (1,442,194)
Net increase (decrease) in cash 624,624) (237,781) (460,034)
Cash, beginning of period 364,994 602,775 602,775
Cash, end of period $ 989,618 $ 364,994 $ 142,741
Cash paid during the year for:
Income taxes $ 2,100,000 $ 5,292,665 $ 61,911
</TABLE>
7
CAPITOL TRANSAMERICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(1) Basis of Presentation
The condensed financial statements included herein of Capitol
Transamerica Corporation (the "Company"), other than the Consolidated
Balance Sheet as of December 31, 1996, and the Consolidated Statement
of Cash Flows as of December 31, 1996, have been prepared by the Compa-
ny without audit, pursuant to the rules and regulations of the
Securities Exchange Commission. Certain information and footnote dis-
closures normally included in financial statements prepared in accor-
dance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations.
Although the Company believes the disclosures are adequate to make the
information presented not misleading, it is suggested that these con-
densed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1996 annual
report on Form 10-K. Wherever applicable, prior period's information
has been restated to reflect the December 31,1996 three-for-two stock
dividend and the December 28, 1995 ten percent stock dividend, and the
June 15, 1992 three-for-two stock split effected as a stock dividend.
(2) Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of shares of stock outstanding during the period.
Prior periods' information has been restated to reflect the applicable
stock splits.
(3) Income Taxes
Deferred income taxes reflect the net tax effects of temporary differ-
ences between the carrying amounts of assets and liabilities for finan-
cial statement purposes and the amounts used for income taxes.
(4) Common Stock Options
There were 47,041 options exercised during the three months ended March
31, 1997 and there were 2,940 options exercised during the three
Months ended March 31, 1996. For further information regarding stock
options, refer to Note 6 of Notes to Consolidated Financial Statements
included in the Company's 1996 annual report.
(5) Dividends
1997
On January 20, 1997 a cash dividend of $.10 per share was declared to
shareholders of record February 14 and paid February 28 in the amount
of $1,114,823.
On January 20, 1997 as cash dividend of $.07 per share was declared to
shareholders of record March 14 and paid on March 28 in the amount of
$780,458.
1996
On November 4, 1996 a cash dividend of $.10 was declared to share-
holders of record December 6 and paid December 20 in the amount of
$739,360.
On November 4, 1996 a three-for-two stock split was declared to share-
holders of record December 31 and paid January 15, 1997 in the amount
of 3,806,355 shares.
8
On September 9, 1996 a cash dividend of $.10 per share was declared to
shareholders of record September 11, and paid September 26 in the
amount of $738,574.
On April 30, 1996 a cash dividend of $.10 per share was declared to
share-holders of record June 12 and paid June 27 in the amount of
$738,426.
On February 23, 1996 a cash dividend of $.10 per share was declared to
shareholders of record March 11 and paid March 28 in the amount of
$738,171.
(6) Investments
Fixed maturities and equity securities are classified as available-for-
sale and, accordingly, are carried at fair value, with unrealized gains
and losses reported as a separate component of shareholders' investment
net of taxes. The cost of fixed maturities is adjusted for amortization
of premiums and discounts to maturity. Fixed maturities and equity
securities deemed to have declines in value that are other than tempo-
rary are written down through the statement of income to carrying
values equal to their estimated fair values.
Investment real estate is carried at cost net of accumulated deprecia-
tion of $244,509, $203,830 and $137,486 as of March 31, 1997, December
31, 1996 and March 31, 1996, respectively.
Cost of investments sold is determined under the specific identifica-
tion method.
(7) Contingent Liabilities
The Company is a defendant in certain lawsuits involving complaints
which demand damages and recoveries for claims and losses alledgedly
related to risks insured by the Company. In the opinion of management,
such lawsuits are routine in that they result from the ordinary course
of business in the insurance industry. The reserve for losses includes
management's estimates of the probable ultimate cost of settling all
losses involving lawsuits.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Capitol Transamerica Corporation (the "Company") is an insurance holding company
operating in 36 states which writes, through its insurance subsidiaries, both
property-casualty and fidelity-surety insurance. The property-casualty segement
accounts for approximately 75% of the business written while the fidelity-surety
segment accounts for approximately 25% of the Company's business.
The underwriting cylcles of the property-casualty insurance industry have been
characterized by peak periods of adequate rates, underwriting profits and lower
combined ratios, while the downward side of the cycle is characterized by inade-
quate rates, underwriting losses and, as a result, higher combined ratios. The
adequacy of premium rates is affected primarily by the severity and frequency of
claims which in turn are affected by natural disasters, regulatory measures and
court decisions which continue to uphold the "deep pocket" theory in awarding
against insurance companies. Unfortunately for the insurance industry, the trend
of increasing price competition has continued as has the number of significant
natural disasters. This combination has resulted in considerable reduction in
underwriting profitability for the industry as a whole.
Inflation also has a significant impact on the insurance industry in general, as
well as on the Company. Inflation creates higher claim costs, which are then
matched currently against premiums whose rating statistics were developed from
data of previous years. In recent inflationary periods, this has led to inade-
quate rate structures, since rate regualtors are slow to grant rate adjustments
at times when the overall economy is in an inflationary cycle. Studies have
shown that premium rates trail the claim experience by a period of two years or
more. Adequate premium rates continue to be of concern to the Company and the
property casulaty industry as a whole.
OPERATING RESULTS
As mentioned in the Overview section, the property-casualty insurance industry
is in a downward cycle. However, based on its operating results the Company is
in a peak period as it continues to generate considerable underwriting profits.
The Company's increase in premiums earned has been strictly due to volume
increases resulting from new product lines, expansion of coverages and entry in-
to new geographic territories. The ability to maintain a steady combined ratio,
typically 15 to 20 points below the industry average, is due to its basic phi-
losophy of generating underwriting profits. When the industry's cycle reverses,
the Company will be in an excellent position to take advantage of premium rate
increases which will benefit the Company's overall profitability.
For the quarter ended March 31, 1997 gross premiums written increased 7.5% over
the same period in 1996. The Company's goal for 1997 is a 15% to 18% increase
in premiums written. Our plan to reach this goal includes geographic expansion
and new product development. In late 1996, Capitol Indemnity Corporation, the
Company's primary insurance subsidiary, became licensed in the state of
Virginia and South Carolina. We are currently attempting to obtain licensing
in the states of Tennessee and North Carolina. The Company is also plans to
continue expansion of its workers compensation insurance writings. Equipment
breakdown insurance, covering breakdowns of items such as telephone and
computer systems, will also continue to be offered on all new and renewal
business in 1997.
Premiums earned are recognized as net revenues after reduction for reinsurance
ceded and after establishment of the provision for the pro-rata unearned portion
of premiums written. Net premiums earned totaled $20,360,470, $77,347,319 and
$17,163,574 for the respective periods; and net unearned premiums were
$42,469,597, $43,258,833 and $32,584,552 at each respective period.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
<S> <C> <C> <C>
Gross Premiums Written $20,286,944 $90,939,387 $18,876,847
Reinsurance Ceded 439,517 1,696,062 751,712
Net Premiums Written $19,847,427 $89,243,325 $18,125,135
Net Premiums Earned $20,360,470 $77,347,319 $17,163,574
Net Unearned Premium Reserve $42,469,597 $43,258,833 $32,584,552
10
While the Company has encouraging reports with regards to premium writings, its
basic philosophy of generating underwriting profits has not changed. Our selec-
tive underwriting practices will continue in the future. The Company's under-
writing results can be measured by reference to the combined loss and expense
ratios. This tabulation includes the operating results of the two subsidiary
insurance companies on a statutory basis. Losses and loss adjustment expenses
are stated as a ratio of net premiums earned, while underwriting expenses are
stated as a ratio of net premiums written. The combined ratios were as follows:
<CAPTION>
March 31, December 31, March 31,
Insurance Operating Ratios (Statutory Basis): 1997 1996 1996
<S> <C> <C> <C>
Loss and Loss Adjustment Expenses 48.8% 53.5% 49.9%
Underwriting Expenses 36.3% 33.5% 34.5%
Combined Ratios 85.1% 87.0% 84.4%
The Company's combined loss and expense ratios compare very favorably with the industry average of 105.5% for the
full year of 1996.
</TABLE>
REINSURANCE
The Company follows the customary practice of reinsuring with other companies,
i.e., ceding a portion of its exposure on the policies it has written. This pro-
gram of reinsurance permits the Company greater diversification of business and
the ability to write larger policies while limiting the extent of its maximum
net loss. It provides protection for the Company against unusually serious oc-
currences in which a number of claims could produce a large aggregate loss.
Management continually monitors the Company's reinsurance program to obtain pro-
tection that should be adequate to ensure the availability of funds for losses
while maintaining future growth.
NET INVESTMENT INCOME AND REALIZED GAINS
In accordance with SFAS No. 115, the Company's fixed maturities and equity se-
curites are classified as available-for-sale and are carried at fair value. The
unrealized gains and losses, net of tax, are reported as a separate component of
shareholders investment.
Interest and Dividend Income: Interest on fixed maturities is recorded as income
when earned and is adjusted for any amortization of purchase premium or dis-
count. Dividends on equity securities are recorded as income on ex-dividend
dates.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
Investments: 1997 1996 1996
<S> <C> <C> <C>
Invested Assets $ 189,338,085 $ 184,801,846 $ 151,216,871
Net Investment Income 2,147,302 7,155,382 1,709,655
Percent of Return to
Average Carrying Value 5.5% 5.1% 5.3%
Realized Gains 345,694 8,468,911 116,259
Change in Unrealized (Losses)Gains $ (3,724,285) $ 12,672,783 $ (644,354)
</TABLE>
The $3,724,285 decrease in unrealized gains for the first quarter of 1997 was
composed of a $3,143,448 decrease in market value over cost of the Company's
equity securities and a $580,837 decrease in market value over cost of our fix-
ed maturities. The decrease in the fixed maturities was caused by rising inter-
est rates during the first quarter. The Company continued to move more of its
investment portfolio into equity securities in the first quarter of 1997. Future
investment decisions will be determined based on the economy and the stock and
bond markets. Although net investment income for the first quarter of 1997 was
up 26% over the first quarter of 1996, the overall rate of return on our invest-
ment portfolio has increased slightly. Net unrealized gains were $29,039,389,
$32,763,674 and $19,446,537 as of March 31, 1997, December 31, 1996 and March
31, 1996.
11
INCOME TAXES
Income tax expense is based on income reported for financial statement purposes
and tax laws and rates in effect for the years presented. Deferred federal in-
come taxes arise from timing differences between the recognition of income de-
termined for financial reporting purposes and income tax purposes. Such timing
differences are related principally to the deferral of policy acquisition costs,
the recognition of unearned premiums, and discounting the claims reserves for
tax purposes. Deferred taxes are also provided on unrealized gains and losses.
LOSS RESERVES
Reserves for loss and loss adjustment expenses reflect the Company's best esti-
mate of the liability for the ultimate cost of reported claims and incurred but
not reported (IBNR) claims as of the end of each period. The estimates are based
on past claim experience and consider current claim trends as well as social and
economic conditions. The Company's reserve for loss and loss adjustment expenses
were $49,098,449 as of March 31, 1997 compared with $47,702,363 as of December
31, 1996 and $39,927,555 as of March 31, 1996. This increase is a combination of
giving consideration for the increase in premium volume, increased retention on
all lines of coverages written and an increase in the IBNR reserves. Management
continues to closely monitor the reserve development trends and projections as
it attempts to stabilize the loss reserve development which has occurred in
recent years.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the Company's ability to meet obligations as they become
due. The obligations and cash outflow of the Company include claims settlements,
acquisition and administrative expenses, investment purchases and dividends to
shareholders. In addition to satisfying obligations and cash outflow through
premium collections, there is cash inflow obtained from interest and dividend
income, maturities and sales of investments. Because cash inflow from premiums
is received in advance of cash outflow required to settle claims, the Company
accumulates funds which it invests pending liquidity requirements. Therefore,
investments represent the majority (83.5%, 80.7% and 84.0% at each respective
period) of the Company's assets. Cash outflow can be unpredictable for two rea-
sons: first, a large portion of liabilities representing loss reserves have un-
certainty regarding settlement dates; and second, there is potential for losses
occurring either individually or in aggregate. As a result, the Company main-
tains adequate short-term investment programs necessary to ensure the availa-
bility of funds. The investment program is structured so that a forced sale li-
quidation of fixed maturities should not be necessary during the course of ordi-
nary business involvement and activities. The Company has no material capital
expenditure commitments.
12
<TABLE>
INSURANCE SUBSIDIARY FINANCIAL STATEMENTS
Statutory Basis as Reported to State Regulatory Authorities
March 31, 1997, December 31, 1996 and March 31, 1996
CAPITOL INDEMNITY CORPORATION March 31, December 31, March 31,
Balance Sheets 1997 1996 1996
<S> <C> <C> <C>
ASSETS
Cash and Invested Assets $ 174,881,222 $168,178,260 $133,840,683
Other Receivables 20,309,941 26,667,268 14,582,237
Total Assets $ 195,191,163 $194,845,528 $148,422,920
LIABILITIES
Reserve for Losses and Loss Expenses $ 48,782,688 $ 47,458,573 $ 39,093,298
Unearned Premiums 42,041,642 42,554,685 31,620,240
Other Payables 19,929,281 17,951,399 14,467,259
Total Liabilities 110,753,611 107,964,657 85,180,797
SURPLUS AS REGARDS POLICYHOLDERS
Shareholder's Equity 84,437,552 86,880,871 63,242,123
Total Liabilities and Capital $ 195,191,163 $194,845,528 $148,422,920
Statements of Income
Premiums Earned $ 20,360,471 $ 77,347,214 $ 17,163,517
Underwriting Deductions 17,263,872 71,777,074 14,914,429
Net Underwriting Gain 3,096,599 5,570,140 2,249,088
Investment Income Including Sales 2,122,397 14,081,370 1,572,916
Other Income 5,366 376,876 30,123
Income Tax Expense 1,407,479 6,462,350 919,826
Net Income $ 3,816,883 $ 13,566,036 $ 2,932,301
CAPITOL SPECIALTY INSURANCE CORPORATION
Balance Sheets
ASSETS
Cash and Invested Assets $ 6,516,149 $ 6,468,105 $ 5,913,351
Other Receivables 77,018 102,565 86,131
Total Assets $ 6,593,167 $ 6,570,670 $ 5,999,482
LIABILITIES
Reserve for Losses and Loss Expenses $ - $ - $ -
Unearned Premiums - - -
Other Payables 404,363 9,422 309,173
Total Liabilities 404,363 9,422 309,173
SURPLUS AS REGARDS POLICYHOLDERS
Shareholder's Equity 6,188,804 6,561,248 5,690,309
Total Liabilities and Capital $ 6,593,167 $ 6,570,670 $ 5,999,482
Statements of Income
Premiums Earned $ 0 $ 105 $ 57
Underwriting Deductions 5,669 18,857 6,811
Net Underwriting (Loss) (5,669) (18,752) (6,754)
Investment Income Including Sales 85,145 303,575 73,003
Other Income - - -
Income Tax Benefit (329) (817) (1,049)
Net Income $ 79,805 $ 285,640 $ 67,298
</TABLE>
13
PART II
14
Other Disclosures
Item 1. Legal Proceedings
Reference is made to footnote number 7 "Contingent
Liabilities" on Page 9 of this report.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
Reference is made to the Notice of Annual Meeting of
Shareholders and Proxy Statement for the Annual
Meeting of Shareholders which was held May 5, 1997,
both of which are dated April 4, 1997 and previously
filed with the Securities and Exchange Commission
and are incorporated herein as an exhibit by
reference.
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
15
CAPITOL TRANSAMERICA CORPORATION
Subsidiaries
Capitol Indemnity Corporation
Capitol Specialty Insurance Corporation
Capitol Facilities Corporation
Board of Directors
Paul J. Breitnauer Michael J. Larson
Vice President and Treasurer President
Capitol Transamerica Corporation Bank One Madison
Sun Prairie, Wisconsin Madison, Wisconsin
George A. Fait Reinhart H. Postweiler
Chairman of the Board Retired-formerly with
and President Flad Affiliated Corp.
Capitol Transamerica Corporation Madison, Wisconsin
Madison, Wisconsin
Robert W. Goodwin Richard E. Tipple
Retired-formerly with Retired-formerly with
Dean Witter Reynolds, Inc. Univ. of Wisconsin
Clearwater, Florida Planning Department
Stoughton, Wisconsin
Officers
George A. Fait Virgiline M. Schulte
Chairman of the Board and President Secretary
Paul J. Breitnauer Jane F. Endres
Vice President and Treasurer Assistant Secretary
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
CAPITOL TRANSAMERICA CORPORATION
George A. Fait
Chairman of the Board and President
Paul J. Breitnauer
Vice President and Treasurer
Date: May 6, 1997
17
CAPITOL TRANSAMERICA CORPORATION
FOR IMMEDIATE RELEASE Contact: Paul J. Breitnauer
Phone (608) 231-4450
NEWS RELEASE
FIRST QUARTER EARNINGS
Madison, Wisconsin, April 24, 1997- George A. Fait, Chairman of Capitol
Transamerica Corporation, announced that first quarter 1997 earnings were
$4.0 million or $.36 per share compared with 1996's first quarter earnings of
$3.3 million or $.30 per share, an 21.6% increase, adusted for the December
31, 1996 three-for-two stock split.
Gross premiums written for the first quarter increased from $18.9
million in 1996 to $20.3 million for the like period in 1997, an increase of
7.50%.
Net investment income was $2.2 million compared with $1.7 million for the
first quarter of 1996, a 25.6% increase. Realized investment gains were
$346,000 in 1997 and $116,000 in 1996. Total invested assets grew from
$151.2 million at March 31, 1996 to $189.3 million at March 31, 1997, an
increase of 25.2%.
Shareholders' investment at March 31, 1997 was $116.6 million or $10.46
per share at compared with $94.8 million or $8.56 per share at March 31, 1996,
an increase of 23.0% Cash dividends amounting to $1.9 million were paid in
the first quarter, consisting of the quarterly dividend of $0.07 per share
and an extra dividend of $0.10 per share.
The Company's combined net loss, loss expense and general expense ratio
for the first quarter of 1997 was 85.1% compared with 84.4% for the first
quarter of 1996. The Company's combined ratio continues to be very favorable
compared to the industry average of 105.5% for the year 1996.
Applications for licensing are pending in two additional states. During
the first quarter the company upgraded its data processing system to prepare
for the turn of the century. Management is optimistic that this will enhance
the value and service to it's shareholders, agents and policyholders.
18
The Annual Shareholders' Meeting is scheduled for May 5 at the Holiday
Inn West in Middleton, Wisconsin.
Capitol Transamerica Corporation is an insurance holding company operating
a regional insurance business writing specialty lines of commercial property
and casualty policies as well as fidelity and surety coverages through its sub-
sidiary insurance companies Capitol Indemnity Corporation and Capitol Specialty
Insurance Corporation. A third subsidiary, Capitol Facilities Corporation, pro-
vides premium financing for the insurance companies.
The Capitol Transamerica Group operates in 36 states and is rated A+
(Superior) by A.M. Best Company, Inc., an independent organization that analyzes
the insurance industry.
Capitol Transamerica Corporation, with 11.2 million shares outstanding,
is traded on the National Over-the-Counter Stock Market under the symbol CATA.
FINANCIAL HIGHLIGHTS FOLLOW
(Adjusted for the December 31, 1996 three-for-two stock split effected
as a fifty percent stock dividend)
19
CAPITOL TRANSAMERICA CORPORATION
SELECTED FINANCIAL DATA
(in thousands, except per share)
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended March 31,
1997 1996
<S> <C> <C>
REVENUES
Gross premiums written $ 20,287 $ 18,877
Net premiums written 19,847 18,125
Net premiums earned $ 20,360 $ 17,164
EXPENSES
Claims and claim expenses 9,888 8,576
Other underwriting expenses 7,548 5,959
Total Losses and Expenses Incurred 17,436 14,535
Underwriting income 2,924 2,629
Investment income 2,147 1,710
Realized investment gains 346 116
Other income 7 31
Income Before Income Tax 5,424 4,486
Income tax expense 1,437 1,206
NET INCOME $ 3,987 $ 3,280
EARNINGS PER SHARE $ 0.36 $ 0.30
<CAPTION>
COMPARATIVE FINANCIAL HIGHLIGHTS- Three Months Ended March 31,
1997 1996 1995 1994 1993
Per Share Information
<S> <C> <C> <C> <C> <C>
Income per share $ 0.36 $ 0.30 $ 0.28 $ 0.24 $ 0.12
Consolidated net income $ 3,987 $ 3,280 $ 3,033 $ 2,629 $ 1,339
Weighted average number
of shares outstanding 11,093 11,058 11,024 10,962 10,899
Book value per share $ 10.46 $ 8.56 $ 6.65 $ 5.83 $ 5.12
Shareholders' investment $ 116,616 $ 94,811 $ 73,434 $ 64,135 $ 55,972
Dividends paid $ 1,911 $ 1,476 $ 535 $ 1,335 $ 1,655
Shares outstanding 11,150 11,073 11,040 11,010 10,935
Company Statistics:
Gross premiums written $ 20,287 $ 18,877 $ 14,903 $ 13,665 $ 10,927
Net investment income $ 2,147 $ 1,710 $ 1,543 $ 1,237 $ 1,212
Invested assets $ 189,338 $ 151,217 $ 114,977 $ 93,760 $ 82,495
Total assets $ 226,628 $ 180,339 $ 137,306 $ 116,230 $ 102,002
Insurance Operating Ratios,
Statutory Basis:
Loss and loss adjustment
expenses: 48.8% 49.9% 50.4% 46.7% 60.0%
Underwriting expenses 36.3% 34.5% 33.8% 33.5% 36.8%
Combined ratios 85.1% 84.4% 84.2% 80.2% 96.8%
20
CAPITOL TRANSAMERICA CORPORATION
SELECTED FINANCIAL DATA
BALANCE SHEETS
(in thousands, except per share)
<CAPTION>
March 31, March 31
1997 1996
ASSETS
<S> <C> <C>
Investments
Available-for-sale investments at fair value
U.S. Government bonds (cost $577, and
$590, respectively) $ 581 $ 596
State and municipal bonds (cost $67,547,
and $68,763, respectively) 71,655 73,830
Corporate bonds (cost $889, and $882,
respectively) 956 835
Common stock (cost $76,702, and $52,695,
respectively) 100,797 66,561
Preferred stock (cost $5,959, and $5,006,
respectively) 6,695 5,561
Investment real estate 6,691 1,428
Short-term investments 1,963 2,406
Total Investments 189,338 151,217
Cash 990 143
Receivables 21,034 16,372
Other assets 15,266 12,607
TOTAL ASSETS $226,628 180,339
LIABILITIES
Reserves for losses and loss adjustment expenses $ 49,098 $ 39,928
Unearned premiums 42,470 32,585
Other liabilities 18,444 13,015
TOTAL LIABILITIES $110,012 $ 85,528
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
15,000 shares, issued 11,466 and
7,592 shares, respectively $ 11,466 $ 7,592
Paid-in surplus 21,484 20,987
Unrealized appreciation on securities carried
at fair value, net of deferred taxes of
$9,874 and $6,612, respectively 19,166 12,835
Retained earnings 64,853 53,719
Less treasury stock, 316, and 210 shares,
respectively, at cost (353) (322)
TOTAL SHAREHOLDERS' EQUITY 116,616 94,811
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $226,628 $180,339
SHAREHOLDERS' EQUITY PER SHARE $ 10.46 $ 8.56
SHARES OUTSTANDING 11,149,659 11,072,571
21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 73,191,850
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 107,492,159
<MORTGAGE> 0
<REAL-ESTATE> 6,690,905
<TOTAL-INVEST> 189,338,085
<CASH> 989,618
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 12,802,028
<TOTAL-ASSETS> 226,628,145
<POLICY-LOSSES> 49,098,449
<UNEARNED-PREMIUMS> 32,584,552
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 11,466,107
0
0
<OTHER-SE> 105,150,231
<TOTAL-LIABILITY-AND-EQUITY> 226,628,145
20,360,470
<INVESTMENT-INCOME> 2,147,302
<INVESTMENT-GAINS> 345,694
<OTHER-INCOME> 6,727
<BENEFITS> 9,888,408
<UNDERWRITING-AMORTIZATION> 176,286
<UNDERWRITING-OTHER> 7,371,157
<INCOME-PRETAX> 5,424,342
<INCOME-TAX> 1,437,005
<INCOME-CONTINUING> 3,987,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,987,337
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<RESERVE-OPEN> 47,702,363
<PROVISION-CURRENT> 3,842,845
<PROVISION-PRIOR> 6,045,563
<PAYMENTS-CURRENT> 2,123,081
<PAYMENTS-PRIOR> 6,369,241
<RESERVE-CLOSE> 49,098,449
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
